Here's What 14 Top Wall Street Strategists Are Saying About The Stock Market In 2014

We thumbed through hundreds of
pages of Wall Street's 2014 outlook notes and compiled the
thoughts of 14 top stock market forecasters.

The average S&P 500 call was 1,949, with a median of 1,950.
For EPS, the mean was $118 and median call was $116.

Here are Wall Street's top strategists with their S&P
500 and EPS calls (from lowest to highest), with their commentary
on why. From bullish to most bullish:

Although our projected S&P 500 trailing valuation
appears expensive on a recent historical basis, the much
broader view of history strongly suggests that at some point in
the current bull market cycle, valuations will indeed exceed
17x or more. In fact, in all but three of the post World War II
bull markets, the multiple exceeded 17x on a trailing
basis. Thus
through the combination of strong corporate balance sheets, an
accommodative Fed, and solid GDP growth fueling increased
revenues in a high operating margin environment do we forecast
an expanding multiple which yields our 2014 Year End S&P
500 price target of 1,950.

Ultimately, we believe that the equity market is set to be on
an uptrend until equities become clearly expensive against
bonds, QE ends or risk appetite is clearly in euphoria zone (as
opposed to neutral now). We have not seen a 10% correction for
25 months – but in the 1980’s, 1990’s and 2000’s we had
three-year, seven-year and 41⁄2- year bull markets in equities
without such a correction. Very near-term we see the risk of
consolidation, with some of the tactical indicators extended
(such as the bull/bear ratio for financial advisors, while net
corporate buying is low) and we expect the Fed to start
tapering in January. However, the tactical indicators are less
extreme than was the case a month ago.

We believe the Standard and Poor's 500 Index will rise to 2,000
by the end of 2014, which implies a price return of about
11%... While that gain would be less than in 2013, our view is
still higher than the consensus view on Wall
Street... Take note that
allocations to equities (53%) are lower than the benchmark
(65%). As for the Federal Reserve, we believe tapering,
accompanied by a growing economy, would actually benefit
cyclical stocks.

In June, we introduced 2014
& 2015 yearend S&P targets of 1850 and 2000. We argued
the S&P PE would climb to its normal trailing PE of 16x
(<15x then) as healthy EPS growth continued within a long
lasting expansionary cycle of moderate growth. We also argued
that if real long-term risk free interest rates stayed below
historical norms when QE stopped, then a PE over 16x trailing EPS
would be fair. The PE is back to normal, a bit earlier than
expected, but the Fed has yet to taper. Thus, we think it prudent
not to assume any further PE upside until we get more clarity on
where 10yr yields likely settle post QE.

We enter 2014 less optimistic than we have been in the
past few years. Our models suggest mid-single-digit gains in
2014 based on slightly lower risk premiums, better revision
trends and dividend increases, but macro conditions remain an
obstacle. Given performance trends to date, we believe this the
prudent approach. While valuation is by no means grossly
overvalued, current levels suggest it may be more difficult for
the market to continue its impressive run without equally
impressive earnings growth. In addition, we believe investors
will be acutely focused on Fed actions, since market
performance has been significantly better during Fed bond
buying programs. Therefore, we expect stocks to perform
strongly during 1H, but fade during 2H as investors grapple
with the removal of QE stimulus. Nonetheless, any Fed induced
weakness should not be view as the end of this bull market.
Instead investors with slightly longer investment horizons
should use it a buying opportunity, particularly considering
that several secular trends suggest that there are many more
years of life in this cycle.

Barry Knapp, Barclays:
S&P: 1,900, EPS: $119.00

At the time of writing, attitudes toward stocks are very
bullish, perhaps overly so. Although sentiment is easy to
measure – several organisations do it – its relationship with
market returns is ephemeral. Sentiment extremes often exist
only briefly ahead of market turning points and disappear
quickly as prices adjust, or even pause. Periods of persistent
bullish or bearish sentiment are usually confirmed by
excessively high or low valuations, which is not the case at
present. Stocks have displayed an unusually tight relationship
with sentiment since 2009. Thus, while establishing our core
views for the coming year, we are holding some capacity with
which to raise the risk of our portfolio further in case of a
sentiment-led near-term sell-off.

Issues such as a likely fight in Washington over the debt
ceiling, aggressive 2014 bottom-up consensus estimates that need
to be trimmed and Fed tapering could coalesce and restrain equity
indices in the next few months. Nonetheless, a shift toward
growth stocks seems appropriate along with large cap names
especially if foreign money moves into US markets

The linchpin of our market forecast is growth – in the economy,
sales, and earnings. We expect 3.6% global economic growth.
The US will advance at a 3% pace while inflation remains
contained at 1.4%. China, Japan, and even Europe will all grow,
expanding GDP by 7.8%, 1.6%, and 1.5%, respectively....However,
we expect no growth in margins and multiple in 2014. Recurring
net margins have remained at a record-high plateau of roughly
8.7% since 2011. Firms have struggled to maintain profitability
at current levels. We estimate flat margins for next several
years. Client inquiries about the appropriate P/E multiple to
assign US stocks routinely ignore that margins are extremely high
on a historical basis and have been stagnant for several
years. Valuation is the biggest wildcard in our market
outlook.

Our S&P 500 upside outlook for the year ahead
is not predicated on comparatively optimistic
earnings expectations. Rather, our own top-down forecast for 2014
S&P 500 EPS is "just" $112.50/shr., or 5.6% higher than our
2013 top-down forecast of 106.50. Margins, as discussed,
are the critical consideration: Against the highly optimistic (in
our view) consensus forecast for 2014 U.S. Net Income and EBIT
Margins to reach unprecedented levels of 10.8% and 15.7%
respectively... we conservatively assume 2014 S&P
Net Income Margin will no more than maintain the 2012-2013 two
year average (i.e., 9.3%).

We expect the S&P 500 to deliver modest returns with the
index rising to 1,950 by the end of 2014. We believe the equity
market is becoming fully valued and active investment strategies
towards domestic growth and small caps ought to deliver better
returns than multinationals and large caps. With sentiment
indicators buoyant, margin debt close to historic levels and
indices trading close to their 2 standard deviation based on
forward PE over five years, investors need to be mindful that a
correction can easily unfold. We don’t expect 2014 to be a smooth
ride. Likewise earnings visibility will need to improve to
maintain the recent fund flow momentum away from fixed income.

Jonathan Golub, RBC: S&P: 1,950, EPS:
$119.00

Such strong [2013] performance might lead investors to assume
that the recovery has matured. We believe that a close look at
the data suggests that we are just now entering the middle
innings. As a result of the weak recovery, the economy has lots
of spare capacity, interest rates and valuations are well below
historical averages, and corporate managements are exercising
extreme risk-averse behavior. We believe these factors are likely
to provide a supportive environment for stocks for three key
reasons: 1. Slack in the economy will keep the Fed from
disruptively removing accommodation 2. Risk-averse corporate
behavior will drive EPS higher 3. Valuations should renormalize,
closing the gap between earnings yields and interest rates.

Although our projected S&P 500 trailing valuation
appears expensive on a recent historical basis, the much
broader view of history strongly suggests that at some point in
the current bull market cycle, valuations will indeed exceed
17x or more. In fact, in all but three of the post World War II
bull markets, the multiple exceeded 17x on a trailing
basis. Thus
through the combination of strong corporate balance sheets, an
accommodative Fed, and solid GDP growth fueling increased
revenues in a high operating margin environment do we forecast
an expanding multiple which yields our 2014 Year End S&P
500 price target of 1,950.

Ultimately, we believe that the equity market is set to be on
an uptrend until equities become clearly expensive against
bonds, QE ends or risk appetite is clearly in euphoria zone (as
opposed to neutral now). We have not seen a 10% correction for
25 months – but in the 1980’s, 1990’s and 2000’s we had
three-year, seven-year and 41⁄2- year bull markets in equities
without such a correction. Very near-term we see the risk of
consolidation, with some of the tactical indicators extended
(such as the bull/bear ratio for financial advisors, while net
corporate buying is low) and we expect the Fed to start
tapering in January. However, the tactical indicators are less
extreme than was the case a month ago.

We believe the Standard and Poor's 500 Index will rise to 2,000
by the end of 2014, which implies a price return of about
11%... While that gain would be less than in 2013, our view is
still higher than the consensus view on Wall
Street... Take note that
allocations to equities (53%) are lower than the benchmark
(65%). As for the Federal Reserve, we believe tapering,
accompanied by a growing economy, would actually benefit
cyclical stocks.

Since last March, we have been sanguine on US equities. Our
logic has been driven more by lack of a bear case than the
strength of the base case. We have seen 3 turns (12.0x to
15.1x) of multiple expansion in the last 2 years, only the 4th
period with this level of expansion over the last 40+ years.
Obviously, a sample size of three isn’t statistically
significant, but the prior three periods were all followed by a
continuation of the rally for another 12-24 months, as momentum
typically persists. The only thing people are worried about is
that no one is worried about anything. That isn't a real worry.

John Stoltzfus, Oppenheimer: S&P: 2,014, EPS:
$115.00

The 2014 target reflects our expectation that the stock market
will have opportunity to move higher over the course of next
year, and turn in yet another double-digit increase— albeit
around half the size of this year’s rally to date. Our price
target is set using the mid-point between our dividend discount
model and a price/earnings model. We expect these
valuation projections to be supported by improving
fundamentals. We continue to believe that US economic growth
has in effect been “primed” by the Federal Reserve’s
Quantitative Easing (QE) programs. Recent improvements in the
tone of US economic data suggest to us that prospects are good
for investors to see a continuation of the economic recovery
that could drive earnings higher in the year ahead.

For several years now we have advanced the idea that
the current bull market could prove to be one of the longest
in history. However, what we believe many investors have yet
to fully appreciate is how this market is indeed behaving
like a classic bull market...we believe this is a classic
bull market and the 6th year is typically strong.
Historically, bull markets lasting at least 4 years (since
1897) have only ended with a recession—that is, they
typically do not end just because "everyone is too
bullish."

Since last March, we have been sanguine on US equities. Our
logic has been driven more by lack of a bear case than the
strength of the base case. We have seen 3 turns (12.0x to
15.1x) of multiple expansion in the last 2 years, only the 4th
period with this level of expansion over the last 40+ years.
Obviously, a sample size of three isn’t statistically
significant, but the prior three periods were all followed by a
continuation of the rally for another 12-24 months, as momentum
typically persists. The only thing people are worried about is
that no one is worried about anything. That isn't a real worry.

John Stoltzfus, Oppenheimer: S&P: 2,014, EPS:
$115.00

The 2014 target reflects our expectation that the stock market
will have opportunity to move higher over the course of next
year, and turn in yet another double-digit increase— albeit
around half the size of this year’s rally to date. Our price
target is set using the mid-point between our dividend discount
model and a price/earnings model. We expect these
valuation projections to be supported by improving
fundamentals. We continue to believe that US economic growth
has in effect been “primed” by the Federal Reserve’s
Quantitative Easing (QE) programs. Recent improvements in the
tone of US economic data suggest to us that prospects are good
for investors to see a continuation of the economic recovery
that could drive earnings higher in the year ahead.

For several years now we have advanced the idea that
the current bull market could prove to be one of the longest
in history. However, what we believe many investors have yet
to fully appreciate is how this market is indeed behaving
like a classic bull market...we believe this is a classic
bull market and the 6th year is typically strong.
Historically, bull markets lasting at least 4 years (since
1897) have only ended with a recession—that is, they
typically do not end just because "everyone is too
bullish."